REITs on the cheap
- 31 January 2025
- QuotedData

With REITs and property companies having been heavily discounted by the market over the past two-and-a-half years, and with share prices moving inversely in eerily close tandem with gilt yields – the sharks are no longer just circling; they are taking huge chunks out of the sector.
Seven REITs and property companies were lost to M&A activity in 2024 – all at substantial premiums to share prices. Meanwhile, the boards at a further six decided to give up in their fight against persistently wide discounts to net asset value (NAV).
Private equity seems to have got the taste for blood, having tucked into some tasty deals over the past couple of years, including Tritax EuroBox and Balanced Commercial Property Trust in 2024 and Industrials REIT and Ediston Property Investment Company in 2023 – all at discounts to NAVs.
With real estate share prices tanking further, as gilt yields spiked following the budget in October, more bait has been thrown into the sea; discounts to NAV widened to an average of 35.6% at the end of 2024.
Potential private equity targets
That leaves most companies in the sector vulnerable to private bids.
PRS REIT is almost certain to go, having put itself up for sale after shareholders (unhappy at the award of an unusually long contract to its manager) pushed for the resignation of its former chairman. It is a great shame that this company– operating in a sub-sector that is exhibiting phenomenal growth drivers for the long-term – will be lost from public markets.
The question mark was always what would happen after PRS finished developing out its landbank of build-to-rent family homes. The board wanted the manager to bring forward further sites for the next phase of development. Shareholders, however, grew tired of the persistently wide discount to NAV and the inaction of the board to close it.
Whoever comes in to seize control of the company is likely to be getting a bargain. While the single-family housing market is still fairly nascent in the UK, it is attracting large sums of institutional money. Just this week Kennedy Wilson and the Canada Pension Plan Investment Board acquired a portfolio of 650 homes across the UK for £213m (average £327,000 per home), and earlier in January Greykite bought 200 homes for an average of £300,000.
PRS REIT’s portfolio was valued at £1.14bn at June 2024, equating to an average of around £210,000 for its 5,477 homes. Granted, most of the portfolio is outside of the South East (where house prices are generally higher than the rest of the country), with the majority located in the North West (52%) compared to just 11% in the South East. But as Figure 1 shows, the value of its portfolio is well below the average house price in every region.

PRS REIT’s share price, which has climbed 14% since the board was requisitioned by shareholders but still trades at a discount to NAV of 19%, implies an average house price value of £192,000 across its portfolio. This seems to be far too cheap.
The rental portfolio is in rude health. In 2024, rents across the portfolio grew 11%, which matched the uplift in 2023. Rent collection was 99%, with just a very small portion in arrears, and occupancy is running at 97%. Meanwhile, the affordability of rents (average rent as a proportion of gross household income) is favourable at 23% – significantly better than Homes England’s guidance of less than 35%.
These portfolio characteristics are indicative of the dynamics at play in the private rented sector. Challenges in the home ownership market have continued to fuel demand in the rental sector, with the median house price to income ratio at historic highs of 8.1x at the end of 2023, according to the Office for National Statistics, while mortgage rates have also risen sharply over the last two years.
Meanwhile, the UK’s private rented residential sector has lost about 400,000 rental homes since 2016, according to CBRE, due to growing cost pressures in the buy-to-let sector and higher mortgage costs.
Merger targets
Of course, it is not just private equity circling. Smaller REITs are at the mercy of their larger peers – as was the case last year with LXI REIT (bought by LondonMetric) and UK Commercial Property REIT (snapped up by Tritax Big Box).
I expect LondonMetric to continue to be knocking on boardroom doors this year, having in the last few years also swallowed up CT Property Trust (in 2023) and A&J Mucklow (in 2019). One of the industrial and logistics players may be a target. Warehouse REIT is trading on a tempting discount to NAV of 38% – although I am not sure whether its majority multi-let industrial portfolio syncs well with LondonMetric’s more single-let logistics-focused portfolio. It may well be the target of private equity, though, such as Blackstone’s industrial property company Indurent (which is the rebadged Industrials REIT).
What may be more of a match for LondonMetric is Urban Logistics REIT. However, it may prove costly to buy out the management team, whose contract was extended by three years in 2024.
The diversified ‘generalist’ REITs are all aware they need to grow to keep the sharks at bay. Custodian Property Income REIT, which missed out on abrdn Property Income Trust last year when the latter’s shareholders voted against the merger, is likely to be back on the prowl – although there is a diminishing number of targets for it to go for.
The consistently top performing AEW UK REIT could be vulnerable due to its size, at just £160m market cap, but shareholders would be reluctant to lose this company given that it has comfortably outperformed its peer group in all time periods over the last five years, whilst also paying one of the largest dividends.
Meanwhile, Picton Property (with a new chair at the helm in former Land Securities chief executive Francis Salway) is alert to the fact that it needs to grow (having launched a bid to merge with UK Commercial Property REIT in 2023, only to lose out to Tritax Big Box).
A combination of these diversified REITs would eradicate the size problem that has contributed to liquidity and persistent discounts to NAV.
Boards belatedly taking action
Boards are (belatedly in most cases) starting to take action to address wide discounts. Picton Property this week announced a £10m share buyback programme in a bid to tackle its 37% discount to NAV. This follows the launch of a similar programme by Schroder European REIT earlier in January and Urban Logistics REIT in December.
Meanwhile, the two trusts in Atrato Capital’s stable – Supermarket Income REIT and Social Housing REIT – are moving to a management fee based on share price performance rather than NAV, which we are a big fan of.
Although it could be argued that real estate discounts to NAV are a reflection of the uncertain macroeconomic environment, boards could have been more proactive. Let us hope it is not too late and we do not lose any more high-quality REITs on the cheap.
This website is for information purposes only and is not intended to encourage the reader to deal in any mentioned securities.
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